.png)
Most buyers consider buying a foreclosed property to save money. Not all bank-owned and foreclosed properties are a bargain, but many are priced at less than market value due to their condition or the lender’s need to recoup their financial losses quickly.3
The Department of Housing and Urban Development (HUD) even has homes listed at $1.4
Buying a foreclosed property can allow you to purchase a home you might not otherwise have been able to afford—perhaps one in a high-demand area or with more square footage than you'd budgeted or hoped for.
That might be where the perks end, however. Foreclosed properties are often in poor condition and require many repairs that the seller is unwilling or unable to make. Most are sold as-is. A majority of property auctions require cash to purchase the home, so you might not be able to finance the purchase via a traditional mortgage loan.5
Pros
May be priced lower than other homes on the market
Cons
Properties often poorly maintained or in disrepair
Sellers often unwilling or unable to make repairs
Previous homeowner might be able to take the home back in some cases
Could require significant amounts of cash if purchased at auction
No record of property repairs and maintenance
Finally, there are concerns regarding the previous homeowners:
Many states have what are called “right of redemption” periods that allow homeowners to catch up on payments and take back their properties.
The previous homeowner might "squat" in the home, and it could be a difficult and time-consuming process to remove them.
The previous homeowner isn't directly involved with the sale, so it can be difficult to know what repairs and maintenance have been done to the house before you move in. Banks don’t have a record of this type of upkeep.
You’re typically purchasing from a large financial institution like a bank or a private lender when you buy a foreclosure, so offers usually require multiple approvals and might take longer to move through the pipeline.
You can generally expect negotiations to be slower and more difficult than they would be with a traditional seller. Banks are looking to recoup as much of their losses as possible, so they’ll usually present a counteroffer during negotiations which must be approved by several people.
You can include a home inspection contingency and negotiate on repairs and pricing based on the inspection’s findings when you're purchasing in a traditional home sale. Individual buyer contingencies (and thus the negotiations based on them) aren't allowed when buying a foreclosed property at auction.